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To increase your credit score you need to know what is causing it to look so bad. A great place to start investigating is the credit report which contains data that determines the score. You are entitled to receive one free credit report every 12 months from each of the three credit bureaus –
All you need to do is go to AnnualCreditReport.com and place a request for your credit report. Do print or save a copy to your computer based on what is most convenient for you to comb through it.
You will need to examine it closely for inaccuracies. Check to see if the late payments, unpaid bills, outstanding amounts being reflected are correct. Also, ensure that the report is not reflecting any delinquent accounts that are invalid. In case of delinquent accounts that don’t check out, reach out to the respective lender or collection agency to furnish the same in writing. If they refuse to give you written proof of the delinquency you can raise a dispute with the bureaus and get it corrected. For the other errors, you can raise a dispute with the respective credit bureau to fix the same. The credit report will indicate where you need to send the dispute details. Beware of websites that offer free credit reports. Read the fine print carefully before transacting on these sites. Reviewing the credit report, escalating detected errors to respective credit bureaus for them to rectify is the fastest way to increase your credit score.
In addition to fixing historical credit and paying off past dues, you also need to ensure you do not add to it in the present or the future. Ensure you make your forthcoming payments on time by setting up reminders through the Internet Banking platform which triggers an email or text reminding you of bills payable. Another great way of staying ahead is by giving standing instructions to your bank to auto-debit the account on a given date each month and pay off your loan installment and the minimum amount on your credit card. This may seem rather obvious given the digital age we live in where reminders and auto-debits should be the norm, but surprisingly people still falter on their scheduled payments and bills due. This is one of the biggest contributors to your negative credit score but trying to stay current even now will help you get out of your past misses. If your current payment patterns are stellar then the past delinquencies will not impact your credit score for much longer.
A relatively lesser known fact is that even a closed account shows up on your credit report and will affect your score even if it has no outstanding amount due. You may have opened new accounts to access more credit. At times you might have also done it to improve your credit mix assuming it would help increase your score. In fact, it could have a dire impact on your score especially if your credit history is short and you have not managed credit for too long. New accounts without much credit information will affect the score adversely because opening newer accounts tends to lower your average account age and also looks very risky.
Increasing your credit limit is a smarter move than opening multiple credit accounts. This is true for two reasons. The credit score is calculated based on a number of inputs. One of which is your credit utilization. It is a percentage of the amount of credit utilized versus your credit limit. For instance, if you have a limit of $20,000 and you utilize $15,000, your credit utilization is 75%. If you were to increase your limit to $30,000 and continue spending $15,000, your credit utilization would be 50%. To credit bureaus and lenders a 50% credit utilization is far more attractive than a 75%. The key is to increase the limit but not increase your credit card use.
Monthly payment of dues becomes a habit since that is the most common payment cycle across fixed expense categories. You may be doing the same with your credit card by paying off all the dues once a month. A slight tweak in this payment pattern could potentially increase your credit score. Creditors/banks provide a monthly statement to the credit bureaus for them to compute your credit score based on credit history. By making a one-time payment monthly to the extent of your limit, your credit utilization rate becomes a 100%. For instance, if you have a $5000 limit and you charge your card for $3000 in the middle of the month and then $2000 at the end of the month. If you were to pay off the $3000 as soon as it was charged during the month, your credit limit would be reinstated to $5000 and when you spent the $2000 your credit utilization rate would then be 40% as opposed to 100$. Also when you make significant purchases on the card and if you do have the cash, pay it off immediately instead of waiting till the end of the month. All of this goes a long way in making sure your credit score stays out of the woods.
Members of a family can add their children or their spouse as an Authorised User to their account. The benefit of this is only seen in your credit score if the account owner has a spotless credit history. The creditworthiness of the account owner is taken into consideration while assessing the credit score of an Authorised User. However, the credit card company must report Authorised User details to the credit bureaus. So make sure to check if yours is part of the list of companies that do furnish details to the bureaus. This method has been misused a great deal with many piggybacking onto other people’s solid credit histories (not necessarily their family members) as a result of which Authorised Users accounts were being excluded from credit scores in certain states. Do try it only if you are a legitimate Authorised User and benefit from a shared credit experience.
Increasing your credit score works in two ways – fixing errors existing in your credit history and maintaining your current credit consistently well to rebuild credit and credibility. Start right away and you will be a lot closer to a squeaky clean credit report and a soaring score.